Large-cap U.S. stocks were roughly flat for the second quarter, as optimism about resilient corporate earnings growth and enthusiasm about a reaccelerating U.S. economy gave way to worries over the ongoing Greek debt crisis. The economy shrugged off a first-quarter slump due to weather conditions and West Coast port closures and posted good job growth, healthy wage gains, and solid consumer spending. T. Rowe Price equity managers are optimistic that the U.S. economy is on solid enough footing to withstand the fallout from the Greek debt crisis, which is unlikely to bring about a broader European financial contagion. Health care and consumer discretionary stocks led the market with modest gains, while utilities and industrials and business services stocks recorded the largest declines.
The Growth & Income Fund returned −0.50% in the quarter compared with 0.28% for the S&P 500 Index and −0.07% for the Lipper Large-Cap Core Funds Index. For the 12 months ended June 30, 2015, the fund returned 7.88% versus 7.42% for the S&P 500 Index and 5.25% for the Lipper Large-Cap Core Funds Index. The fund's average annual total returns were 7.88%, 16.36%, and 7.64% for the 1-, 5-, and 10-year periods, respectively, as of June 30, 2015. The fund's expense ratio was 0.67% as of its fiscal year ended December 31, 2014.
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Apart from small positions in the telecommunication services and materials sectors, financial stocks were the portfolio's best contributors. Although this economically sensitive sector has rebounded from the lows of the global financial crisis in 2008 and 2009, valuations in certain areas are still reasonable. We also believe there is significant leverage in this sector due to the improving U.S. economy, a strengthening housing market, and the potential for rising interest rates. The portfolio's utilities stocks declined. Utilities stocks often behave like bonds because of their relatively high dividend yields, and they weakened as long-term interest rates increased in response to a strengthening economy and the likelihood of a Federal Reserve rate hike later this year.
The outlook for U.S. equities remains generally positive. But after a six-year bull run that has seen the S&P 500 rise more than 200%, we note that investors may have grown too complacent about the risk of short-term market volatility. Equities still appear quite attractive when measured against very low Treasury yields, but their somewhat high absolute valuations make them vulnerable to the Fed's timetable for returning interest rates to more historically normal levels. A mature economic cycle also implies that companies will have a harder time expanding margins by cutting costs and that only companies that are executing well will be able to see solid profit growth. We believe that finding the standout performers in each industry will be increasingly important in the coming months and that the careful selection of individual stocks is likely to add value relative to a broad-based, index approach.